THE SOUTH AFRICAN TREASURER: NEXT GENERATION TREASURY

14 TMI | THE SOUTHAFRICANTREASURER NEXT GENERATIONTREASURY Are there specific accounting considerations, including hedge accounting? Yes. The nature of ESG financing can result in accounting complexities. Sustainability-linked financing can cause variability in the cash flows of issued debt and the financial statements, for example it may change the interest rate profile depending on whether the issuer meets ESG related targets. Issuers need to assess whether such features represent embedded derivatives that have to be separated from the debt host contract and accounted for as standalone derivatives. In addition, the impact of features such as step-up coupons need to be taken into consideration when developing an appropriate hedging strategy. Should an issuer wish to hedge its debt, for example for interest rate risk or foreign currency risk, step-up features present in the bond may not be present in the hedging instrument, which may lead to hedge ineffectiveness and financial statement volatility. As such, careful designation of the hedged risk is required. SA Green Taxonomy On 1 April 2022, South Africa’s first Green Finance Taxonomy was published by the Taxonomy Working Group chaired by National Treasury, as part of South Africa’s Sustainable Finance Initiative. What is the Green Finance Taxonomy? The Sustainable Finance Initiative2 defines the SAGreen Taxonomy as: “an official classification or catalogue that defines a minimumset of assets, projects, and sectors that are eligible to be defined as ‘green’ or environmentally friendly. It supports emerging national policy and voluntary The lifecycle of a green bond LINDY SCHMAMAN Associate Director, Financial Services Advisory, Deloitte Africa Lindy is an Associate Director and Consulting Actuary in the Financial Services Advisory division of Deloitte. She has been extensively involved in the development, implementation and review of risk and capital management frameworks at a number of financial services institutions in South Africa. Lindy has a keen focus on sustainable finance and on the integration of climate risk within organisations’ enterprise-wide risk management frameworks. She has worked closely with key subject matter experts in the UK, US and Europe in obtaining insight into global best practice and regulatory developments.

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